Optimising financial performance measures in a supply chain network redesign

Jahani, H 2019, Optimising financial performance measures in a supply chain network redesign, Doctor of Philosophy (PhD), Business IT and Logistics, RMIT University.


Document type: Thesis
Collection: Theses

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Title Optimising financial performance measures in a supply chain network redesign
Author(s) Jahani, H
Year 2019
Abstract Financial issues play a critical role in the strategic design of supply chain networks (SCNs). They have a strong impact on the structure of supply chains (SCs). Investigation of the literature evidences that many aspects of financial issues in SCN designing are still far from being fully integrated in the existing models. Most of the studies have ignored that the SCs' financial performance stems from its accounting information system (AIS). This study reviews the development of SCN designing models that integrate financial and operational issues in a holistic optimising approach. Considering main characteristics of the models in a redesigning approach, our models deliberate the previous configuration of the SCN to recommend controlled, minimal changes when new products are launched to the SCN's new and existing markets. The main uncertainties of a real market are reflected as demand and price uncertainties as well as their correlation in markets.

In the first proposed model, a basic multi-period, multi-tier, multi-product SCN redesign model is introduced to consider launching new products in markets. When new products are introduced into a supply chain, the existing logistics may no longer optimally meet the objectives of the enterprise. The basic model provides an analytical approach to redesigning a supply chain network (SCN), considering its current infrastructure. While aiming to maximise total profit, we take into consideration the demand and price uncertainty and their correlation as two important risk factors, and formulate them using associated Brownian motions employed in a real options pricing approach. Our model captures multiple periods and cash flow aspects through a nonlinear structure. In the solution approach, we apply a novel piecewise linear conversion. Our theoretical model is complemented by a realistic case study from the Australian cement industry. We demonstrate significant improvements in the financial position of the company after redesigning its SCN. For instance, the SCN redesign increases total profit by 49%, while the profit from the existing product increases by 23%. The results also indicate that ignoring the effect of the correlation leads to profit overestimation.

Incorporation of financial and operational risk management is the key contribution of the second model, which contemplates maximisation of the financial performance indicators (FPIs) rather than profit. The second model (called the FPI model) proposes a novel organisation that uses essential accounts existing in the basic financial statements of an SCN company to delineate how the strategic financial considerations can influence the network structure and its operational flows. The proposed model takes the existing SCN structure into account, and redesigns the optimal supply network when new products are introduced to markets. It ascertains the future financial position of the company, as well as the optimal levels of loans and the proportion of available cash required for financing the new design. As a company's measure of profitability is related to the uncertain demand and price of new products, we consider stochastic continuous and correlated processes to characterise these uncertainties. The final nonlinear model is solved by employing a piecewise linearisation method. We examine the applicability of the model by designing a realistic case study of an Australian SCN company and comparing the results with a profit maximisation model. Furthermore, we evaluate the resulting financial ratios with real ratios aimed at representing the reliability of the model and introducing future target values for the ratios. This study offers several managerial insights regarding the FPI model. For instance, considering inventory values as a current asset in designing an SCN leads to a realistic design that is aligned with financial statements and is also reportable to creditors and investors.
Degree Doctor of Philosophy (PhD)
Institution RMIT University
School, Department or Centre Business IT and Logistics
Subjects Logistics and Supply Chain Management
Keyword(s) Supply chain network design
Financial performance
Stochastic demand and price
Real options
Corporate finance
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Created: Tue, 26 Nov 2019, 13:19:13 EST by Adam Rivett
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